It’s tough out there in the current property market if you’re a first home buyer wanting to take that giant leap to get on the property ladder. Every dollar counts though, and to put this into perspective, for every $1,000 you have in deposit, this could add $10,000 to $20,000 to your overall purchase price for your home.
Currently, the banks require a minimum deposit of 10%, or if you are eligible for the “First Home Loan,” the minimum deposit is 5%. So, how can we go about getting enough deposit for our first home? There are several options on how you can come up with a house deposit, which we will look into below:
Save! Save! Save!
Whilst this is a well-known way of coming up with a deposit and we know you’re probably thinking, “but, I’ve been trying to!” We’re talking about truly setting the goal of homeownership and taking steps to get there. They may be tiny steps but if you don’t start today, homeownership could be just a dream.
Everyone’s financial position is different, and you might not know if you’re frivolously paying x amount of dollars for something that is deemed a want or even a luxury. Often there are payments for subscriptions that are no longer in use or other expenses paid for that are unnecessary and can be cancelled and redirected into your savings.
Steps to take:
- Review your spending – download your last 3 months’ statements from your internet banking and run through the transactions highlighting any unnecessary spending or spending you feel could be stopped or cut back. When you add the total of your highlighted transactions, this will truly put into perspective how much you could increase your savings by each month.
- Review your debt position – sometimes when you take on debt, you haven’t been thinking about purchasing your first home. Often consolidating short-term debts such as credit cards, store cards, hire purchases, personal loans, and vehicle loans can be an option to free up extra money each payday to put into savings. This option needs to be reviewed by your Connect Me Mortgages adviser to make sure it is suitable for you.
- Run some numbers – try out the neat saving calculators and tools on www.sorted.org.nz. These are free and independent, so that makes them worth your while.
KiwiSaver First Home Withdrawal
Over the years, this has quickly become one of the most common methods of obtaining a deposit for first home buyers. If you’ve been contributing to your KiwiSaver for 3 or more years, and you’re a first home buyer, then you may apply to withdrawal nearly all of your KiwiSaver funds or a set amount, if you prefer.
It is important to contact your KiwiSaver provider to establish your first home buyers’ estimate withdrawal amount, as you need to leave a minimum of $1,000 in your KiwiSaver at the time of making your withdrawal and you cannot withdraw any transferred Australian complying superannuation funds if this applies to you.
If you intend on making a KiwiSaver First Home Withdrawal soon and you are in a growth or aggressive fund, you may want to talk with your KiwiSaver provider to discuss if switching it to a more conservative fund would be a more suitable option given your intention to make a withdrawal soon. This is so your balance doesn’t take a nosedive out of the blue, right at the time that you need to make your withdrawal, leaving you short of funds to complete the purchase of your new home on the settlement date. Once you’ve made your KiwiSaver withdrawal, you have the option to change back to your original preferred fund, but don’t forget to have that conversation with your KiwiSaver provider or Financial Adviser to make sure that this aligns with your retirement goals.
Steps to take:
Contact your KiwiSaver provider directly to find out how much you can withdraw and ask them:
- if they can email you confirmation of your first home buyer’s estimate withdrawal amount, this email will be required for evidence of your deposit funds for when applying for a home loan.
- make sure they can send through an application form to make a withdrawal at the same time so that you can be ready to apply to get the funds out when you have an offer accepted on a house.
If you are a previous homeowner and do not currently own a home, land, or have a share in a property, you may be able to make a KiwiSaver withdrawal, if you haven’t done so already. You will need to apply with Kāinga Ora first, to determine whether you are deemed to be in the same financial position as a first home buyer: https://kaingaora.govt.nz/home-ownership/kiwisaver-first-home-withdrawal/. The letter that Kāinga Ora will supply if they confirm that you qualify, will need to be submitted with your KiwiSaver withdrawal application.
First Home Grant
As property prices rise, it can be difficult to meet the maximum property purchase price cap to be eligible for the First Home Grant, however, it is still possible in more regional areas of New Zealand, and a welcomed boost to your deposit.
If you have made KiwiSaver contributions for a minimum of 3 to 5 years, and you’re making a KiwiSaver withdrawal, then the Grant provides between $3,000 to $5,000 per applicant, if you are buying an existing property for your first home. If you are considering a new build option, then this doubles to between $6,000 to $10,000 per applicant.
Steps to take:
- Check your eligibility – to quickly get an indication if you meet the initial criteria for the First Home Grant, and the amount of the Grant you could be entitled to, check out this 3 step questionnaire on the Kāinga Ora website that only takes about 30 seconds to complete: https://kaingaora.govt.nz/home-ownership/first-home-decision-tool/
- You will need to apply for the First Home Grant, and once you have been pre-approved for the Grant, you will receive an emailed letter confirming this, which will be required for evidence of your deposit funds when applying for a home loan. You can complete the online application for the First Home Grant on the Kāinga Ora website here: https://kaingaora.govt.nz/home-ownership/first-home-grant/apply-for-the-first-home-grant/apply-for-pre-approval-for-a-first-home-grant/
Selling assets such as secondary cars, motorbikes, caravans, etc can be a good way of increasing your deposit. If you have an asset like this that is a discretionary asset (i.e. not a car that’s your primary method of transport), then it is worth considering how much your purchase price will increase by, if you were to sell.
Sometimes, there is finance taken up for the original purchase of the asset, so you may want to check any outstanding balances on the finance held in the event you need to repay this loan in full if the loan is secured by the asset you intend to sell.
Steps to take:
- Check with your Connect Me Mortgages’ Adviser – it is important to make sure that by selling the asset it does not negatively impact you financially, so it is recommended you review your overall financial position to make sure this is a suitable option for you before proceeding.
Borrowing for a Deposit
There are instances where you can borrow funds to go towards your deposit. In order to do this, you will generally need to have a high level of uncommitted monthly income, as the loan for deposit is on a higher interest rate, and over a short total term (usually 5 – 7 years max). If you are using this option for a deposit, we will need to arrange the home loan with a non-bank lender which does also incur higher interest rates than a bank.
Whilst the rates are higher for this arrangement, it can be a good option to achieve homeownership, and then in the future move the home loan to a bank to access lower interest rates (in most instances this can be done within a 12-month period).
Steps to take:
- Check with your Connect Me Mortgages’ Adviser – it is best that we review your financial position upfront to establish if this option will work for you. We would also want to establish what options you have for a pathway to move the home loan to a bank lender in the future.
For many first home buyers, they will not meet the banks’ minimum deposit requirements which are currently either 5% if you are eligible for the “First Home Loan”, or 10% for a standard bank home loan. This is where parents can assist their children with the following 4 options:
- Gifted funds
- Deed of Acknowledgement of Debt (lending funds)
- Being a guarantor, offering a property as additional security
- Co-borrowing with parents against their property for deposit
To find out more details about each of the above options on how your parents may be able to assist you, check out our blog post we have on this:
If you think that you’re very close to your house deposit goal or need some guidance on how best you can achieve the deposit requirements; let’s talk. Fill in the form below and we can start a ‘house deposit’ conversation.
Let's Talk 'House Deposits'...House Deposit Form
Lending criteria are always subject to change. The information contained in this blog is not tailored mortgage advice; please contact a Connect Me Mortgages Adviser to get tailored mortgage advice for your own financial position.